In their quest for universal health care coverage, liberal lawmakers have come to a harsh awakening. As it turns out, insuring everyone is expensive! So, in an attempt to make good on their vast promises without going beyond President Obama’s $900 billion spending limit for health care reform, the Democrats have turned to Medicaid as a means to expand coverage in both the House and Senate health care bills.
Momentarily putting aside the question of whether expanding the nation’s worst program counts as reform, expanding Medicaid poses yet problems, using Medicaid to cover the uninsured is appealing to federal lawmakers because they can share the burden of paying for it with the states. Most state officials, unlike Congress, actually have to balance a budget.
In a recent paper, Heritage scholar Dennis Smith outlines why the states are simply incapable of carrying this burden, regardless of how high the federal matching rates are. Smith points out that, though state general fund expenditures over the last 32 years have increased at an average rate of 5.6 percent each year, in 2009 expenditures actually decreased. This trend is expected to continue into 2010.
In their budgets for 2010, states made across the board spending cuts. 30 states made cuts to their K-12 education budgets, 30 states cut higher education, and 28 states even made cuts to Medicaid. And yet Congress expects these same states to increase spending on Medicaid by adding more people to the program.
Adding to these dim prospects is the fact that states have become more and more dependent on federal funding to meet their budgets. Federal funding for the states has increased 21.2 percent, mostly due to the stimulus bill. When these funds expire, which they will, it will be up to the states to either make further cuts to state programs or somehow come up with the funds themselves.
The states are currently facing a fiscal crisis. Adding to their financial obligations will only result in more drastic cuts to other state programs. Since Medicaid and education account for the majority of state spending, and states will be forced to increase spending in Medicaid, it only seems logical that budgetary cuts will be made to education, another area in which reform is needed. Federal lawmakers should take these matters into account when voting for a mandate on the states to increase their Medicaid spending.
Expanding Medicaid does not count as health care reform. True reform would include restructuring Medicaid as it currently stands, an issue which has been excluded in the current health care reform bills.
The House Financial Services Committee yesterday OK’d a key part of Barney Frank’s agenda for reform of the financial industry yesterday, voting to 31-27 to adopt his plan for so-called “too-big-to-fail” banks. The measure has been widely touted as providing a way to avoid future budget-busting bailouts of the industry.
That would be welcome. After a year of seemingly endless TARP bailouts and abuses, most taxpayers want to make sure that we never go down that road again. The problem: far from making future TARPs less likely, the Frank plan actually paves the road for more.
The bill would give financial regulators sweeping powers to control firms deemed “too big to fail” — those whose messy failure would put the entire financial system at risk. But this puts quite a lot of faith in regulators, who — having missed the last crisis — clearly have no magic ball for determining risk. As Heritage senior fellow David John points out, the authority will likely be used to limit newer lines of business instead of traditional ones, depriving consumers of the real benefits of financial innovation.
Making things even worse, the real life effect of the new powers will be to signal to markets that the targeted firms are supported by the federal government, and guaranteed against failure — thus leading them to take more undue risks, not more.
American Enterprise Institute scholar Peter Wallison summed it up well, saying: “Regulation doesn’t work,” adding: “And now they’re proposing regulation that doesn’t work for the entire financial industry.”
But the Frank bill doesn’t stop at regulation. It also would give the FDIC broad power to seize and close failing financial institutions, with limited court review of its actions. And most disturbingly, it would establish a fund for FDIC to use to resolve the affairs of firms it takes over. This is the final irony: Rather than avoid future bailouts, the proposal would facilitate them. As Wallison put it, Congress will have created a permanent TARP.
There is an alternative: bankruptcy, the time-tested procedure for dealing with economic failure. With a few minor changes, the bankruptcy code could be more effectively used by failing financial firms to allow them to fail in an orderly fashion, without threatening the broader financial system.
Congress should rethink its rush to regulation and more bailouts, and instead work to make failure a real option for financial firms. This is a task which is too big to get wrong.